Mexican Peso rebounds as Retail Sales beat forecasts, Banxico stays dovish

• Mexican Peso appreciates, shrugging off dovish Banxico stance, weaker economic outlook.
• Mexico's December Retail Sales exceed estimates but slow from prior month.
• Banxico minutes reaffirm dovish stance, highlighting progress on disinflation.
• Q4 GDP final reading expected to confirm economic slowdown on Friday.

The Mexican Peso staged a comeback, rising over 0.23% against the Greenback. Retail Sales in December exceeded estimates, yet they lagged compared to the previous month's figures. The USD/MXN trades at 20.39 after hitting a daily high of 20.46.

Mexico's economic docket revealed that consumer spending dipped compared to November's data but exceeded private economists' pessimistic expectations. Meanwhile, Banco de Mexico (Banxico) revealed its latest Meeting Minutes, reaffirming the Mexican institution's dovish stance, and suggested that further rate cuts are eyed.

On Wednesday, Banxico revealed its quarterly report for Q4 2024, in which the central bank downwardly revised its growth forecast for 2025. Furthermore, the bank expects weaker consumption and private spending, reflecting the highly uncertain environment.

Regarding their 50basis-point rate cut in the latest monetary policy decision, the Governing Board ruled out they're comfortable with the current inflation levels. It highlighted the progress of the disinflationary process.

On Friday, the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) will feature the final GDP reading for Q4 2024, which is expected to show a quarterly contraction and is foreseen expanding annually.

Daily digest market movers: Mexican Peso climbs, unfazed by weaker economic outlook

• Banxico's latest minutes acknowledged that growth risks are tilted to the downside. The Governing Board expects the economy will grow 0.6% in 2025, down from the 1.2% previously foreseen. The forecast is well below the estimate from Mexico's Finance Ministry of 2.3% and beneath the Citi Expectations Survey of 1%.
• For 2026, Banxico estimates that Mexico's economy will expand by 1.8%.
• Mexico's Retail Sales rose by 0.1% MoM, above estimates for a -0.4% shrinkage. On an annual basis, sales improved from a -1.9% contraction to -0.2% YoY.
• Mexico's President Claudia Sheinbaum said that Marcelo Ebrard, Mexico's Secretary of Economy, will meet with the US Commerce Secretary today about tariffs.
• Monetary policy divergence between Banxico and the Fed favors further USD/MXN upside. The Fed is expected to keep rates steady, while Banxico is foreseen cutting rates again by 50 basis points at the next meeting.
• The USD/MXN is advancing due to weakness in the Greenback. The US Dollar Index (DXY) dropped 0.65% to 106.45.
• Trade disputes between the US and Mexico remain front and center. Although the countries found common ground previously, USD/MXN traders should know that there is a 30-day pause and that tensions could arise toward the end of February.

USD/MXN technical outlook: Mexican Peso is steady as USD/MXN is below 50-day SMA

The USD/MXN continued consolidating below the 50-day Simple Moving Average (SMA), keeping bulls in check. Further weakness could drive the exchange rate below the 100-day SMA at 20.22 and threaten to challenge the psychological 20.00 figure. If cleared, the next support would be the October 18, 2024 low at 19.64, ahead of the 200-day SMA at 19.37.

Conversely, if USD/MXN climbs past the 50-day SMA, further gains lie ahead of the 20.50 mark.